Quick Thoughts: AAPL, FB, QCOM, GOOG, and AMZN – 5 Beats This Week?

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–          AAPL’s Monday report should easily top consensus of $14.09 EPS and $57.5B revenues on Japan fueled iPhone sales, but may just meet the rising whisper numbers.

–          Expect a big top-line beat out of FB – strong market shift to social/mobile ads drove 59% growth in 3Q. Consensus is low balling with forecasts of 46% growth in 4Q – up just 16% QoQ

–          QCOM EPS estimates have fallen 9% since Oct., with a sharp sales deceleration QOQ built in. Global smartphone market looks a bit soft, but QCOM will beat on share gains.

–          Online ad sales should also lift GOOG above the $12.21 EPS/$16.76B sales consensus, with MOT less of a drag than usual. Estimates look even easier for 2014.

–          AMZN earnings are a wild card – analyst EPS forecasts vary btw $0.01 and $1.86 around the $0.66 mean. Expect sales better than the $26B consensus and another free pass on profits.

I usually stay out of the quarterly earnings game. Each of the top TMT names has dozens of analysts keeping detailed financial models, issuing forecasts, and either taking victory laps or offering excuses as the releases roll in every three months. Still, with 5 of the 7 companies that I see as the most important players for the future of TMT reporting over the next 4 days, I thought I might offer my thoughts.

I just published a lengthy piece on Apple (http://live.ssrllc.com/2014/01/january-22-2014-apple-is-apple-the-new-microsoft/), laying out the case for a cautious long term outlook on the stock – high end segments becoming saturated, competition in devices growing fiercer, shortening product life cycles, high- price premiums becoming more of a liability with less differentiation, etc. However, this caution is unlikely to kick in until the June quarter, when the now new iPhones and iPads are long in the tooth and the initial revenue burst from adding giant carriers NTT DoCoMo and China Mobile to the list of iPhone distributers dies down. This quarter, Apple beats consensus.

During the Holidays, Apple had 9 of the top 10 selling smartphone models in Japan – accounting for the same phone selling at a different carrier as a separate product. In October, the first full month of sales for the new 5S and 5C, iPhones were 76% of all cell phones sold in the country, including 61% of sales for new customer NTT DoCoMo, the largest carrier in Japan. While Kantar Worldpanel reported YoY share losses for Apple in the five largest European markets (660bp) and in the US (990bp) during the three months ending with November, a Christmas push from the new iPads and the Japanese iPhone craze, likely pushed the quarter over the top. A similar phenomenon will likely play out in the March quarter as well, this time buoyed by China Mobile’s January iPhone launch.

I beat up on Facebook out of the IPO gate, thinking that it had maxed out on its ability to push advertising into user news feeds. I was wrong. The company has done a great job in monetizing its increasingly mobile base of active users, and in a quarter where signs suggest that advertisers are taking on-line advertising, and in particular, mobile and social advertising, more seriously, it’s hard to bet against it. In 3Q13, Facebook grew sales at nearly 60%, yet the assembled sell side is collectively forecasting a relatively paltry 46% YoY rate for 4Q.  Facebook has beaten the street’s revenue consensus in every quarter that it has been a public company, and I don’t expect that streak to stop now.

Princeton economists may have dubiously forecast that Facebook would lose 80% of its active users by 2017, but there are no real signs of that supposed exodus yet. Instead, I see advertisers jumping on board, and signs that management may find ways to better engage them. A rumored launch of more targeted Facebook apps would both help resolve the chaos of the user news feed – now a highly edited jumble of status updates, posted articles, picture tags, invitations, messages, and awkward “like” ads – and give advertisers a better context for presenting their exposures. It is no slam dunk that Facebook can keep the good times going for the longer term, but betting against it in 2014 feels risky.

Qualcomm reports Wednesday, and analysts have tempered their expectations – probably a fair reaction given the clear signs of saturation at the high end of the developed world smartphone market that has been increasingly dominated by QCT’s Snapdragon system-on-a-chip solutions. I’m a bit less concerned of this, in Qualcomm’s case, as the company has worked to offset the impact of this phenomenon. Qualcomm has taken a ton of market share in the last year, not just in smartphones, but also in tablets, where its chips now power the most popular models not made by Apple. It has also branched out into radio solutions, increasing the value of chips that it can sell into a single device, while also aggressively pursuing opportunities in the red-hot low end smartphone market. I believe that success in these areas – tablets, radio, low-end chips – can make up for slowing in the company’s traditional high-end smartphone stronghold.

The current consensus revenue estimate of $6.66B is just above the center point of management’s $6.3-$6.9B 1QFY14 guidance for a company that has delivered at the high end of its guidance in each of the last 4 quarters. The consensus EPS estimate of $1.18 is at the high end of the $1.10 to $1.20 guidance, and in keeping with the historical performance of the company relative to its guidance, although earnings have been more volatile than sales. However, with a forward P/E of just over 13x and a 0.90 PEG ratio, the market is less than confident in Qualcomm’s ability to meet the longer term consensus forecasts. I think this company, well positioned for nearly everything that may happen in the wireless internet, deserves a lot more faith than that.

Google reports on Thursday and estimates are all over the map. Analyst’s sales forecasts for 4Q range from $15.7B to $18.2B and EPS from $10.04 to $13.67. The mean revenue forecast of $16.76B suggests 16% YoY growth – this is better than the 12% growth posted in 3Q13, but includes a MUCH easier compare for the Motorola Mobile segment, which had collapsed this time last year. With a far stronger slate of devices in the market, Motorola is unlikely to repeat its disastrous 4Q12 performances. Meanwhile, the advertising driven businesses – primarily search and YouTube, but also AdSense and other initiatives – should benefit greatly from the frothy on-line advertising market. I look for a revenue beat this quarter, and importantly, expect Google to beat for the rest of the year too.

Earnings are a more difficult nut – management is not particularly forthcoming on its plans for expenses or projections for gross margins. Absent surprises, which in the case of Google are certainly a possibility – the fixed cost nature of Google’s business should yield considerable leverage to the bottom line. Longer term, I continue to see Google as the single best positioned company on the planet to exploit the paradigm shifts that are reshaping the global TMT landscape. I have written extensively of Google’s substantial technology and infrastructure advantages in addressing web-scale data processing challenges, assets that could be monetized in an almost limitless set of ways – not just search and mobile apps, but in enhanced reality, self navigating vehicles, medical science, and other seemingly off the wall “moon shots”.

Finally, Amazon. It doesn’t seem to matter what Amazon posts with regard to earnings, and, as such, analyst estimates are comically disparate. 40 analysts, one of whom expects the company to earn a penny a share, another who expects $1.86, and the others arrayed in between for an average of $0.66. With tons of thin margin Kindles flying out the door and amped up marketing campaigns, one could argue for the under, while with stories of overwhelmed delivery partners struggling to keep up with unexpected package volumes, the over has an equally compelling case.

What doesn’t seem in doubt is that Amazon will post another big revenue number. From the cleverly placed 60 Minutes Jeff Bezos puff piece on Black Friday weekend, to the buzz around the Kindle Fire HDX, and that tsunami of two-day deliveries, the consensus projection of 22.5% sales growth seems almost in the bag coming off of a 23.8% growth quarter. Ultimately, earnings haven’t mattered for Amazon’s stock performance, and I’m guessing that whatever the EPS number, that Bezos will get the benefit of the doubt again, as long as he beats on the top line.

 

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